It was nice to hear Dal economist Lars Osberg on CBC Radio last week calmly talking sense about the federal equalization program. No, the sky is not falling, Osberg said, just because Ontario is officially joining the ranks of the so-called “have-not” provinces. Next year, Ontario will receive about $347 million from equalization, a program established in 1957 to redistribute federal money among the provinces. The idea is to make it possible for poorer provinces to finance adequate levels of public services without having to impose sky-high taxes to pay for them.
Ontario’s entry into the equalization club means that every province has now qualified for payments. As Osberg pointed out in a 2005 newspaper article, Alberta drew from the program from 1957 to 1965. It also benefited from federal subsidies that encouraged the development of its oil industry just as Ontario profited from steep national tariffs designed to protect its fledgling manufacturers. As premier Angus L. Macdonald pointed out way back in the 1930s, the tariffs meant Nova Scotians paid more for everything from cars and radios to refrigerators and farm equipment. The flow of money to Ontario continues today as Nova Scotians spend at least two dollars on manufactured and packaged goods imported from central Canada for every loonie we receive in equalization. And that’s why the equalization program is enshrined in the Canadian constitution. It’s a formal way of smoothing out inequities in the national economy, a kind of federal economic insurance policy paid for by taxpayers in all parts of the country.
I know, I know. Right-wingers at corporate-sponsored think tanks keep peddling the myth that equalization is an expensive welfare program, one that makes Nova Scotians dependent on the kindness of wealthy strangers. We should learn to stand on our own two feet, they insist. These are the slogans of market fundamentalists, zealots who see Canada as a collection of competing fiefdoms, a nation of shopping malls rather than one country forged out of conflict and compromise. The expensive welfare program the right-wingers talk about is actually costing $13.6 billion this year, less than six percent of total federal spending. Yet, the $1.5 billion equalization payment Nova Scotia receives represents 18 percent of provincial revenues, a little less than one dollar out of every five. Seen in that light, a modest federal program helps make it possible for Nova Scotia to exist as a vigorous part of a country that supports a variety of distinctive regional cultures anchored in a common national economy. For better or worse, we have existed that way since Confederation when, as Osberg points out, debt-free Nova Scotia helped rescue Ontario “from the profligacy of its railway construction debts” and, along with the other provinces, agreed to surrender its right to collect customs duties, then a major source of government revenues. “To compensate the new provinces for their revenue losses,” Osberg writes, “the federal government made transfer payments to the provinces which were actually larger, as a percentage of provincial revenues in the 1870s, than they are today.”
So, redistributing wealth in Canada is nothing new. And the fact that Ontario now qualifies for equalization because of its troubled manufacturing sector is not nearly as striking as some in the mainstream media would have us believe. The $347 million equalization payment Ontario will get next year is barely a drop in the bucket compared to its $100 billion budget. In spite of its economic problems, Ontario continues to be a mighty engine of the Canadian economy, home to one in three Canadians who together produce almost 40 percent of the total value of the country’s goods and services. The Atlantic provinces, on the other hand, produce only six percent. So, Lars Osberg is right. Just because Ontario is drawing a tiny wad of cash from the equalization program, doesn’t mean the country is going to hell in a handbasket.
This article appears in Nov 13-19, 2008.
